Kenanga Research & Investment

AEON Credit Service (M) - Hopeful for Supportive Pipeline

Publish date: Tue, 09 Apr 2024, 11:07 AM

AEONCR’s FY24 net profit (+2% YoY) met expectations but its total dividend was a positive surprise due to higher-than-expected payout. The group may see its financing portfolio benefiting from improving economic and income prospects, with its upcoming digital bank widening its outreach to prospective depositors and borrowers. Maintain OP with forecasts relatively unchanged and a slightly higher GGM-derived PBV TP of RM8.55 (from RM8.48) on earnings model updates to the group’s books.

FY24 met expectations. AEONCR’s FY24 net profit of RM424.0m was within both our full-year forecast and consensus full-year estimates. Meanwhile, a final dividend of 14.0 sen (full-year payment of 28.25 sen, post-bonus issue) was above our expectations of 26.0 sen due to a higher payout of 34% from our anticipated c.30%.

YoY, FY24 net interest income increased by 18% on the back of a 13% increase in gross financing receivables alongside an 82 bps rise in NIMs. Cost-to-income ratio was somewhat stable at 34.2% (-0.4ppt) as higher expenses could be tied to the higher transaction volumes. On the flipside, impairments also rose with credit cost coming at 4.93% (+ 60 bps) as staging requirements were more stressed during the year. Including its first reported losses from associates in relation to its digital bank, FY24 net profit was slightly flattish at RM424.0m (+2%).

QoQ, 4QFY24 net interest income only increased by 2% following some NIM compression (-8 bps) on stabilising rates while gross financing receivables also gained a modest 3%. That said, given the relative higher motor financing impairments seen in the previous quarter (-37%), 4QFY24 net profit surged by 39%.

Outlook. AEONCR could likely see sustained growth in its financing books as economic prospects are expected to pick up. We opine its key segments of motorcycle, auto and personal financing could see support from better disposable income outlook. This could also translate to fewer delinquencies going forward. Meanwhile, the group has also been outsourcing its collection processes to ensure better returns. Given its digital bank (Aeon Bank) looking to be launched to the public soon, AEONCR may have access to cheaper funds in the near-term; albeit this will be restrained by Bank Negara Malaysia’s RM3b asset limit during its foundational phase.

Forecasts. Post results, we slightly tweak our FY25F earnings by - 0.5% as we incorporate FY24A numbers into our model. Meanwhile, we introduce our FY26F numbers.

Maintain OUTPERFORM with a slightly higher TP of RM8.55 (from RM8.48), following our abovementioned adjustments. Our TP is based on an unchanged GGM-derived PBV of 1.50x (COE: 11.8%, TG: 1.5%, ROE: 17.0%) against a CY24F BVPS of RM5.67.

We continue to see strength in AEONCR’s fundamentals are they stand out against conventional banking institutions with ROE prospects of over 15% with more modest dividend yields (c.5%). As the digital banking space grows, we believe investors may see such license holders (i.e. Aeon Bank) to possess more value propositions that may embolden the stock attractiveness. Specifically with microlending in mind, it could see strong traction in an eventual strong economic growth environment.

Risks to our call include: (i) lower-than-expected receivables growth, (ii) extension of moratorium, (iii) higher-than-expected impairment losses, and (iv) lower-than-anticipated write-backs.

Source: Kenanga Research - 9 Apr 2024

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